Fujifilm is using its experience with silver to create bigger and more affordable touch-screen displays. Laptops and desktops sporting large touch-responsive panels are costly to produce because the sensors are made of a rare and brittle material called indium tin oxide, or ITO.

Fujifilm and other companies, including Atmel Corp. (ATML) and Uni-Pixel Inc. (UNXL), are working on new, less expensive approaches that rely on different metals to help the industry lessen its dependence on ITO and overcome one of the biggest obstacles to adding touch to PC screens. Just 13 percent of notebooks this year will feature touch, underscoring the challenge facing Microsoft and PC makers such as Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL) as they try to mount a credible threat to Apple, which has been selling touch-screen devices since 2007.

“The entire industry has been looking for a replacement for ITO for years,” Cody Acree, an analyst at Williams Financial Group Inc. in Dallas, said in an interview.

Putting touch in 23-inch to 27-inch displays used in all- in-one desktop designs adds as much as $180 to the cost, according to Acree. For smaller computers and tablets, with up to 11.6-inch screens, it adds about $45, he estimates.

Microsoft’s Windows 8, the first of its flagship operating systems designed around touch technology, went on sale in October. The new devices met with tepid demand amid economic weakness, high prices and the lack of the touch-screen feature available in other gadgets. PC sales will decline 1.3 percent this year after falling 3.7 percent last year, according to IDC.

Touch-Enabled PCs

“We saw ramp-up challenges as the ecosystem learned to scale to new screen sizes and a wide variety of devices,” said Mark Martin, a spokesman for Redmond, Washington-based Microsoft. “Launch was just the beginning. Touch drives user engagement and is rapidly becoming a must-have capability.”

Martin declined to discuss Microsoft’s suppliers or say whether the company plans to purchase touch-screen technology from Fujifilm. The Japanese company isn’t listed among Microsoft’s suppliers, according to data compiled by Bloomberg.

Still, Tokyo-based Fujifilm is taking advantage of its photographic film technology as it seeks to meet demand. The company uses a material called silver halide to create sensor meshes in grids of almost invisible fine wires to detect touch, Keiji Uchiyama, a technical manager at Fujifilm’s Substrate Solution Group, said in an interview.

New Generation

“Set makers are concerned about the shortage of touch- screen film supplies and about relying on ITO technology,” Uchiyama said. “The supply shortage became more apparent in the fall and we started to get a much stronger response to our product.”

Founded as Fuji Photo Film Co. in 1934, Fujifilm grew into a global supplier of photographic film for cameras, cinema and medical equipment. While Fujifilm successfully navigated the transition a decade ago from analog to digital photography, the recent proliferation of smartphones equipped with high- resolution cameras has prompted it and other digital-camera manufacturers to seek new growth areas.

While Nikon Corp. (7731) and Ricoh Co. (7752), which have branched out beyond cameras, are valued by investors at 21 times projected profit for the current fiscal year. Fujifilm, which is pursuing growth in businesses including multi-function printers, medical equipment and liquid-crystal display materials, has a price-to- earnings ratio of 18.

Fujifilm shares rose 0.6 percent to 1,827 yen at the close of trade in Tokyo today.

Consumers are growing familiar with touch-enabled devices, and they’re increasingly demanding the capability when shopping for a PC, Acree said.

“You have an entire generation that is starting out with touch smartphones and tablets,” he said.

Flexible Displays

Just 2.5 percent of notebooks sold last year were touch- enabled, and that figure that will rise to only 13.1 percent this year, even with the introduction of Windows 8, NPD DisplaySearch predicts.

“Consumers don’t see why they should pay a premium for a feature that’s already part of their smartphones and tablets,” said Richard Shim, an analyst at NPD DisplaySearch.

Almost all of the screens in iPhones, iPads and touch- enabled devices use ITO, a byproduct of zinc production. A so- called rare-earth material, most of ITO comes from China.

Japan’s Nitto Denko Corp. (6988) is the biggest maker of ITO-based touch sensors, and counts Samsung Electronics Co. and Apple among its top customers, according to data compiled by Bloomberg. Kazuhito Kouno, a spokesman at Osaka, Japan-based Nitto Denko, declined to comment.

Atmel, based in San Jose, California, is already shipping the new sensors for use in an Asustek Computer Inc. (2357) tablet, according to Brett Gaines, senior director for business development of Atmel’s XSense business.

Cost Challenge

In addition to being cheaper and giving more accurate readings of where a device is being touched, copper-based technology opens the door to curved and even flexible displays. Unlike screens with ITO, which breaks easily, metal-based panels can bend, Gaines said. Samsung Electronics and Apple, which together supply more than half of the smartphone market, dominate demand for ITO supply, soaking up more than half of the industry’s output, he said.

“There clearly is a drive, especially in larger screens, to find a replacement to ITO,” said Gaines. “Cost is one of those reasons. PC players are seeing that touch is a driver, especially in the face the onslaught of tablets.”

Uni-Pixel has created a process that prints and plates a copper grid onto rolls of plastic, avoiding the multistep semiconductor-type manufacturing for ITO-based touch screens.

Dell Deal

Based in Woodlands, Texas, Uni-Pixel, which has never posted more than $200,000 in quarterly revenue, believes it has a chance to help the $223.3 billion PC industry directly by entering production, even though it has fewer than 50 employees, according to Chief Executive Officer Reed Killion.

Uni-Pixel shares have almost tripled since Dec. 7, when it announced it had signed up a large PC maker. The company is being paid cash upfront to set up dedicated production lines. Dell is the company working with Uni-Pixel, according to Acree.

Ellen Murphy, a spokeswoman for Dell, declined to comment.

“One of the advantages we’ve had is that we’ve gone relatively unnoticed,” Killion said. “Nobody thought 20 guys and mule in Texas could deliver to scale.”